Fall in Terrorism Attacks Doesn’t Mean Decline in Insurer Vigilance

While the total of terror attacks has declined on a global basis, the number of incidents remains at historic highs and insurers need to continue monitoring situations to better understand risk, says Guy Carpenter.

In its continuing series GC Capital Ideas, the reinsurance broker says that based on figures released by the National Counterterrorism Center, there has been a general decline in the number of terror attacks over the past five years from their peak of 14,400 in 2006. According to the NCTC, there were over 10,000 terrorist attacks in 2011 resulting in over 12,500 deaths.

However, when viewed over an eight year period, 2004, when the NCTC began collecting data, to 2011, the levels today remain historically high.

“Unlike other perils, (re)insurers struggle to quantify the risk posed by terrorism due to its unpredictable nature,” says Guy Carpenter, adding that its unpredictability is rooted in the human element that is difficult to quantify.

There are measures that the carriers can take to “improve risk awareness” however, says Guy Carpenter.

By monitoring world events and locations, plus the number of “foiled attacks can help (re)insurers better understand the risk.”

Companies need to be informed of developments “to assess the risk of doing business in certain countries.”

Among countries that Guy Carpenter says clients need to be wary of doing business in are Somalia and Yemen with the rise of terrorism linked groups.

Others nations where terrorism remains a high risk include Afghanistan, Iraq, Israel, Pakistan and the Palestinian territories.

The risk threat extends beyond these countries to other areas of the Middle East and North Africa.

Guy Carpenter cautions that while the threat of terrorism is reduced in Europe and the United States, both remain on the radar of those targeting Western countries.

The broker notes too that the threat of terrorism has changed over the years from large-scale and spectacular attacks to soft targets “with attacks and plots becoming more localized.”

For insurers, the most significant events since 9/11 have been the Madrid train bombings of 2004, the London transport network attacks in 2005 and the Mumbai shootings in 2008.

Lone attackers have cropped up in the United States, where many plots have been foiled. However, “intelligence agencies warn it is almost inevitable that a cell will successfully execute an attack at some point in the future.”

“For insurers with terrorism risk on their books, it is important to understand how the terrorism threat is evolving, the varying risks in different regions and what developments and risk are likely in 2013 and beyond,” Guy Carpenter advises.